Ladies and gentlemen, thank you for standing by and welcome to ADTRAN's First Quarter 2019 Earnings Release Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer period.

[Operator Instructions] During the course of the conference call, ADTRAN representatives expect to make forward-looking statements, which reflect management's best judgment based on factors currently known.

However, these statements involve risks and uncertainties including the successful development and market acceptance of core products, the degree of competition in the market for such products, the product and channel mix, component costs, manufacturing efficiencies and other risks detailed in our Annual Report on Form 10-K for the year ended December 31st, 2018.

These risks and uncertainties could cause actual results to differ materially from those in the forward-looking statements, which maybe made during the call. In addition, ADTRAN will webcast this conference live through our website at www.adtran.com. It is now my pleasure to turn the call over to Tom Stanton, Chief Executive Officer of ADTRAN.

Sir, please go ahead..

Thank you, Priscilla. Good morning, everyone. We appreciate you joining us for our first quarter 2019 conference call. And I am joined today by ADTRAN's CFO, Mike Foliano. Following my opening remarks, Mike will review the quarterly financial performance in detail, and then we'll take your questions.

We're pleased with our progress in the first quarter of 2019.

We executed well towards our goals to meet our financial objectives, strengthen our customer, product and geographic diversification, ensure seamless integration of our SmartRG team in their first full quarter as part of ADTRAN and accelerate customer traction with our fiber, broadband and subscriber experience solutions.

From a top line perspective, revenue for the quarter was $143.8 million, up 19% on a year-over-year basis. Network Solutions accounted for the majority at $125.8 million, a 19.5% increase over the same quarter in 2018. Global Services and Support revenue contributed $18 million or 12.5% of total company revenue for the quarter.

This is a 15.5% year-over-year increase. The timing of key customer infrastructure projects resulted in nearly 50% of our revenue for the quarter coming from international markets.

We finished the quarter with three 10% revenue customers located in three different markets LatAm, Europe and North America underscoring the impact ADTRAN is having as we help our customers build their best networks.

I'd like to mention a few achievements from Q1 that highlight our focus to help our customers grow revenue further simplify network operations and accelerate service velocity. A central focus for us over the last few years has been to expand our PON portfolio and Fiber-to-the-Premises customer base.

I am pleased with our progress, as our Fiber-to-the-Prem product revenue grew more than 52% year-over-year. We now have partnered with well over 300 different operators to rollout PON to enable residential, business and mobile applications.

We continue to gain momentum in selling software applications that enable service providers to use intelligence within their network that dramatically improve their business operations.

An example from Q1 is one of our regional cable operators is now utilizing Mosaic Subscriber Insight for monitoring and billing across 150,000 of their broadband subscribers. This enables them to eliminate hardware-based solutions with high annual maintenance cost.

We've consistently demonstrated our ongoing commitment to ensuring that broadband is available across rural America.

To help further assist this commitment ADTRAN introduced during the quarter a comprehensive Connect America Fund monitoring and performance test solution, that enable service providers to meet and manage FCC requirements with minimal inconvenience and without raising privacy concerns.

All while offering enhanced data analytics, to help improve their customer experience. The end-to-end network performance test solutions enables recipients of CAF funds to meet their requirements that go into effect July 1, 2019 as described in the FCC order.

It also accommodates those service providers looking to meet Alternative Connect America Cost Model, A-CAM, requirements detailed in that same order as well as future testing regulations that may develop – be developed in other countries.

In addition to tremendous customer engagement at Mobile World Congress, we're proud to make three key announcements. We partnered with Telefónica to successfully demonstrate a 10-gig PON in an opened disaggregated architecture as part of their 5G showcase.

They now plan to move forward into field trials as they embark upon an upgrade to one of the world's largest Fiber-to-the-Premises subscriber basis across Spain and Latin America.

To help our customer to maximize the 5G opportunity, ADTRAN also announced an extension of our fixed wireless access portfolio with the addition of new millimeter wave mesh and point-to-point – point-to-multipoint solutions that enable rapid deployment of dense 5G networks.

We also announced a collaboration with IoT.nxt, a leading internet-of-things technology company in South Africa. To help carriers and enterprises around the world designed new services and solutions by bringing various streams of IoT devices and their data together with a single easy-to-use platform.

This collaboration with IoT.nxt is one example of the power of ADTRAN's smart OS with its software development kit framework. ADTRAN will now be able to provide both enterprise and carrier customers with smart streamlined management of IoT data that will help drive better and more informed business decisions.

Our solution has already been selected by Vodacom, a leading operator with over 55 million customers and service across 32 African countries. I'm also pleased to report that recently we surpassed the 20 million port milestone for cumulative VDSL2 vectoring port shipments. Our traction with cable – in the cable MSO market continues to gain momentum.

During the first quarter, a Tier 1 cable operator continued to ramp their weekly subscriber count on ADTRAN's 10-gig EPON solution towards their target of a 10 times subscriber growth in 2019. We were also pleased to be invited into the lab phase with a third Tier 1 cable operator with our 10-gig PON solution.

We continue to see strong traction with our XGS 10-gig PON solutions as well in a growing a variety of market segments with announced wins during the quarter in Europe and North America.

At our broadband business and solutions summit this week, the team outlined a next round of exciting enhancements in our PON portfolio, which we'll publicly announce throughout this year.

As of most of you know at the end of last year, we acquired SmartRG, an innovative company that leads the market and helping service provider's better leverage the connected home opportunity to improve and monetize the subscriber experience.

I'm pleased to report that the promise we saw in its teams solutions and technologies is already having a positive impact and how our customer view this rapidly emerging opportunity.

As 10-gig moves from the network planning stage to real-world deployments, we see interest from and deployments by a wide range of service providers for our market-leading XGS-PON solutions, especially in North America and Europe. But we're also seeing emerging opportunities in Australia, the Middle East, Africa and Latin America.

From Zune's deployments across the U.K. targeting a million homes to the most networks upgrading its network to better serve rapidly growing bandwidth demands from the rural communities they serve in Virginia, our industry-leading 10-gig solution portfolio is enabling our customers to push more robust fiber services further.

In summary, we are pleased with our progress in the first quarter of 2019. Our revenue was diverse and well balanced with material contributions across LatAm, EMEA, North America and the Pacific Rim regions. Furthermore, our broad portfolio continues to gain market traction, with a growing number of customers in an expanding range of market segments.

This progress underscores the company's global impact as we help our customers build their best networks. Before I turn the call over to Mike, I'd like to acknowledge and express my thanks to Bill Marks, who is retiring from ADTRAN's Board of Directors.

Bill has served on the Board since 1993 and has been a tremendous asset to the Board, the company and to me. We wish Bill all the best. And with that, Mike will review the financials and we'll then be happy to answer any questions you may have.

Mike?.

Thank you, Tom and good morning everyone. I will review over first quarter results and discuss what we see for the next quarter. During my report, I will be referencing both GAAP and non-GAAP results.

The differences between reported GAAP and non-GAAP includes stock-based compensation, acquisition-related expenses and amortization restructuring expenses, amortization of pension, actuarial losses, non-cash changes in fair value of equity investments for our deferred compensation plan and gain on a bargain purchase of a business.

As Tom stated, ADTRAN's first quarter revenue came in at $143.8 million compared to $140.1 million last quarter and $120.8 million for the first quarter of last year.

Breaking this down across our divisions, our Network Solutions revenue for the first quarter was $125.8 million versus $116.9 million reported for Q4 of 2018 and $105.3 million in Q1 of last year.

Our Global Services and Support revenue in Q1 of this year was $18 million, compared to $23.2 million reported for the fourth quarter of 2018 and $15.6 million in the first quarter of last year.

Across our revenue categories, Access & Aggregation revenue for quarter one of 2019 was $99.8 million, compared to $100.5 million last quarter and $81.7 million in quarter one of 2018.

Revenue for our Subscriber Solutions and Experience category was $36.8 million for the quarter versus $31.2 million for quarter four of 2018 and $30.1 million for quarter one of last year. Traditional & Other Products revenue for the quarter was $7.3 million, compared to $8.3 million for quarter four of 2018 and $9 million for quarter one of 2018.

Looking at our revenues geographically. Domestic revenue for Q1 2019 was $72.5 million versus $74.8 million reported in quarter four of 2018 and $62.1 million in quarter one of last year. Our international revenue for quarter one of 2019 was $73.1 million, compared to $65.3 million for quarter four of 2018 and $58.7 million in quarter one of 2018.

We published the reporting of each of these categories on our Investor Relations web page at www.adtran.com. As Tom stated in his opening remarks, we had three 10% of revenue customers during the quarter.

Our GAAP gross margins for the first quarter of this year were 42.2%, compared to 39.5% last quarter and 32.9% reported in the first quarter of 2018. Non-GAAP gross margins for quarter one were 43% versus 40% in the prior quarter and 35% in the first quarter of last year.

The quarter-over-quarter and year-over-year increases in our gross margin were primarily driven by our domestic product mix and increased weighting of our Network Solutions portfolio. Total operating expenses were $66.8 million for quarter one of 2019, compared to $59.2 million reported last quarter and $66.4 million for quarter one of last year.

On a non-GAAP basis, our first quarter operating expenses were $60.5 million, compared to $60.2 million last quarter and $60.9 million in quarter one of 2018.

The slight non-GAAP quarter-over-quarter increase in operating expense was primarily the result of a full quarter of incremental expenses related to the SmartRG acquisition and increased marketing expenses, partially offset by reductions in organic contract services, labor selling and insurance expenses.

The non-GAAP expense year-over-year decrease is primarily attributable to decreases in labor, fringes and contractor expenses, partially offset by the addition of operating expenses from the SmartRG acquisition.

Operating income on a GAAP basis for the first quarter was a loss of $6.2 million, compared to an operating loss of $3.8 million in the prior quarter and a loss of $26.6 million reported in Q1 of last year.

Non-GAAP operating income for quarter one of 2019 was $1.4 million, compared to a loss of $4.2 million in Q4 of 2018 and a loss of $18.7 million in quarter one of last year.

The quarter-over-quarter increase in non-GAAP operating income was driven by improved gross margins in our product portfolio and increased sales volumes, partially offset by a full quarter of incremental operating expenses associated with the SmartRG acquisition.

The increase in our Q1 non-GAAP operating income as compared to Q1 of 2018 operating loss is attributable primarily to higher sales volume with higher gross margins in both our products and services portfolios domestically and internationally and lower operating expenses.

All other income for quarter one of 2019 was $7.2 million, compared to the loss of $6.8 million last quarter and an income of $11.9 million for quarter one of 2018, which included a bargain purchase gain of $11.3 million associated with the acquisition of North American EPON assets from Sumitomo Electric.

The other income in the quarter was primarily from market-driven unrealized gains in our equity investment portfolios as well as the receipt of insurance proceeds from the life insurance policy.

Our non-GAAP other income for the quarter that just ended was $5.3 million, compared to a loss of $3 million last quarter and income of $1 million for quarter one of 2018. The shifts in non-GAAP other income were primarily driven by fluctuations in our equity investment portfolios.

The company's GAAP tax provisions for quarter one 2019 was $308,000 as compared to $2.1 million tax benefit in the fourth quarter of 2018 and a benefit of $3.9 million in the first quarter of 2018.

The shift to a tax expense in the quarter as compared to a benefit last quarter and in Q1 of 2018 was primarily driven by the return to profitability in the quarter. GAAP net income for quarter one of this year was $770,000 compared to a loss of $8.4 million last quarter and a loss of $10.8 million for the first quarter of last year.

Non-GAAP net income for the first quarter of 2019 was $4.9 million, compared to a loss of $5.8 million last quarter and a loss of $15.8 million in quarter one of 2018. Earnings per share on a GAAP basis were $0.02, compared to a loss of $0.18 per share last quarter and a loss of $0.22 per share in the first quarter of 2018.

Non-GAAP earnings per share for the first quarter of this year were $0.10, compared to a loss per share of $0.12 last quarter and a loss of $0.33 per share in quarter one of last year. We've provided a reconciliation between diluted GAAP earnings per share and diluted non-GAAP earnings per share in our operating results disclosure.

Now turning to the balance sheet. Unrestricted cash and marketable securities net of debt totaled $174.7 million at quarter end, after paying $4.3 million in dividends and repurchasing 13,000 shares of common stock for $184,000 during the quarter. For the quarter, we generated $5.5 million of cash from operations.

Net trade accounts receivable were $99 million at quarter end, resulting in a DSO of 62 days compared to 65 days last quarter and 60 days at the end of first quarter of 2018. The decrease in DSO versus last quarter is mainly attributable to the earlier timing of international shipments during the quarter and customer mix.

The lower DSO in Q1 of 2018 was driven by customer specific payment terms that are no longer in effect. Inventories were $93.6 million at the end of the first quarter compared to $99.8 million last quarter and $120 million at the end of quarter one in 2018. Looking ahead to the next quarter.

The book and ship nature of our business, the timing of revenue associated with large projects, the variability of order patterns and the customer base into which we sell, as well as the fluctuation in currency exchange rates and our international markets may cause material differences between our expectations and the actual results.

However, our current expectations are that our second quarter 2019 revenue will be in the range of $154 million to $158 million. After taking into account the potential effect of currency exchange rates and anticipated mix, we expect that our second quarter gross margins on a non-GAAP basis will be in the low 40s.

We also expect non-GAAP operating expenses for the second quarter of 2019 will be up slightly over the first quarter amount. Finally, we anticipate the consolidated tax rate for the second quarter of 2019 on a non-GAAP basis will be up sequentially in the high 20s to 30% due to increased income and restructuring charges in our European operations.

We believe the significant factors impacting revenue and earnings realized in 2019 will be the following.

The macro spending environment for carriers and enterprises; currency exchange rate movements; the variability of mix and revenue associated with project rollouts; the proportion of international revenue relative to our total revenue; professional services activity levels, both domestic and international; the timing of revenue related to the Connect America Fund projects; the adoption rate of our broadband access platforms; and inventory fluctuations in our distribution channels.

Additional financial information is available at ADTRAN's Investor Relations website by going to www.adtran.com and follow the Investor Relations link. With that, now I'll turn the call back over to Tom.

Tom?.

Thank you, Mike. Priscilla, at this point, we're ready to open up to any questions people may have..

[Operator Instructions] We'll take our first question today from Rod Hall with Goldman Sachs..

Hi. Thank you for taking my question. This is Ashwin on behalf of Rod. I wanted to ask about visibility heading into the second half of this year, particularly in Australia and LatAm. Maybe Tom, on Australia, we know that there is a big phase two opportunity there.

Could you comment on what you are seeing there in terms of activity and your visibility? And related to LatAm, we understand that the customer there is probably a little bit more lumpy than other customers. Just wondering how you're thinking about the customer for second half of this year? And then I have a follow-up..

Sure. So, as far as Australia, as you know we have a large customer there that were shipping family G.fast, VDSL2, there are also -- and that business is ongoing. And we -- there are -- there is a phase two of that project, which we feel very good about.

So -- but there are also a couple of other opportunities within that customer that we expect to be shipping in the second half of the year as well. So, we're feeling good about Australia.

Whether or not that'll actually equate to the Q1 performance? Yeah, I would expect to actually -- from our visibility today we actually expect it to be up in the second half versus first half. LatAm, same thing that we're going to build out right now, with large customer in LatAm. We have other customers in LatAm other than that one.

But that one is definitely oversized compared to the rest. There is ongoing -- there is a push for Vectored VDSL and for 35b VDSL. They have shared with us their plans and right now we're expecting kind of a solid strength through the year with that customer..

Got it. And my follow-up is on U.S. Revenue was up nicely in the quarter. I know last year was tough. So, besides easier comps, wondering if you could comment on drivers of this trend here domestically and growth expectations for the year? And kind of related to that.

We knew that Calix kind of had supply issues and we're wondering if you can comment on whether or not you're seeing any incremental opportunities?.

I mean, there are always opportunities that pop-up and whether or not they are driven by any particular supply issues with a competitor or not is kind of hard to specifically say. I don't see big -- I didn't see a big impact in Q1 because of the supply issue.

So, I mean, I think, we had just other things that we are taking root in and we had won some customers and word is as I mentioned on my call we are in LatAm with some new customers that may be beneficial to us. But I don't think they were directly supply related. We do expect the U.S. to actually see growth in the second half.

We expect probably to see a more seasonal pattern of growth, right, where you'll see a peak in the third quarter. Some of our customers as you know are going through different processes, but our communications with that particular customer are strong and they still have plans to continue to grow and we're in a good position with them.

As you know our largest customer in the U.S. are traditionally largest customer in the U.S. typically starts off a little slow. And then you see them incrementally increase through the year and that's exactly what we expect this year..

Okay. Thanks..

I'll -- actually I'll add one other piece which is that the MSO piece that our cable piece is actually doing very well right now..

Got it. Awesome. Thank you..

Okay..

Our next question today is from Paul Silverstein with Cowen. Your line is open..

Hey, guys. I apologize if you all have already said this. But Tom, I know there is sensitive around customer by customer bases, but is there any insight you can share with us on the big customer in the U.S.

that project that's been on the counter for a while, but seems like it hasn't driven -- hasn't gone through the meaningful growth stage yet? And again, I apologize if you've already spoken about it..

No, well, I have.

I guess, I guess give me a little more -- what -- which technology are you talking about?.

I'm talking about the Gfast build-out, if I recall..

Well, it's -- no. No material change there. There are other places now where, of course, Gfast is taking hold, both in Australia and in Europe. And we -- and in -- we have new renewed interest in actually forecast for Latin America. But the specific customer you're talking about, not a material change..

Can I ask you a broader question? What are you most excited about over the next six and 12 months in terms of driving revenue growth? You've got a number of big projects that offer -- that have offered for some time the prospect of significant incremental growth. I know there is always a timing issue with these big customers.

But when you look at those projects, what do you most excited about? What are you most confident in terms of material drivers over the next six to 12 months?.

Exciting and confidence are two different things, right?.

Could you answer both?.

Between the most exciting and the ones you are the most nervous about. But -- so I'm very happy with what we've been able to accomplish in Australia. And I think we're positioned-well to actually grow not only in the basic customers -- or excuse me -- in the base of product that we're shipping there today.

But I think we're well positioned to grow in other areas. So, I feel good about Australia. Over not just -- over the long-term, not just what we're going to do necessarily this year. I feel the same way about Latin America.

That customer -- the big customer there has been kind of closed up for a period of time and they had very clear and strong plans to increase their broadband. So, I feel good about the opportunity there. I'm not saying that we've got everything inked down, because it's a large customer with a lot of plans, but we're very well-positioned there.

And I think right now we're doing a good job. And then the European carriers that I talked about on the last call, and I mentioned one of them I think today in my notes, but there are -- there is a ton of activity going on in Europe right now mainly centered around XGS-PON.

And so if I think about the long-term prospects there, where we're positioned today, where our technology is with our disaggregated solution, where we're positioned from a geopolitical perspective, I feel very good about that. And those are probably the things that are to me feel like the hardest things that will most move the needle..

Tom, one last question for me. With respect to the customers historically that's been your largest in the U.S.

Any change in visibility as to the plans over the course of this year for better or worse?.

No. Not a lot. I mean, they're continued, I talked about them working forward with a trial and doing some increase in vectoring which we saw last year. We're actually doing some completion of that this year and then going through an evaluation phase. I do think that the PON business there is actually doing well and it should grow.

We expect that customer to grow throughout the year, but no real change. There hasn't been a sea change in their mindset at this point in time..

Would you -- do you think they're up this year over the last year?.

I would think so. I mean, but we'll see how it plays out. I mean, a lot of that our business with them is multi-fold. One is, we have vectoring, the other is, we have CAF. The third is, we are doing a growing services business with them.

So we're not only doing installation services for our own product, but we're doing installation services across the board from a turf footprint. And we have recently just won some new businesses in the services side that will actually start shipping in the second half. So I'm not expecting huge growth out of that. But I think it will do well.

I think when I had mentioned in prior quarters that we kind of hit the bottom of that we kind of hit the floor there and we expect it to grow from there. I still feel -- I feel good about that..

I appreciate it. Thank you. I will pass it on..

Okay. Sure..

Thank you. We'll take over next question today from Michael Genovese with MKM Partners. Your line is open..

Hey, thanks very much. First question, this 10% customer in Latin America, it sounds like it's a customer in a country that would be in NAFTA.

I just want to verify? And ask have they ever been a 10% customer before or is this the first time ever?.

Yes. And yes..

So they have been before in the past?.

Yes. It's been a long time..

Okay, great. And then I wanted to ask about the gross margins. I mean, I see -- I want to ask about how you improve them so much sequentially when your U.S. business was pretty strong. I mean, I -- sorry, the international business was pretty strong.

I see that there was a mix where services were not as strong as they were the last quarter so that probably helped. But I'm still impressed with the gross margins considering how well you did internationally.

So could you speak more about how you did that?.

Yes. Well, I think there's two things. One is product mix. So, there are certain products regardless of their international or domestic that actually just sell at a higher gross margins than other products. So mix helped us some this quarter. And then the other is actually just efficiency gains.

I think the -- our factories across the world when we saw an uptick in that volume and as you could -- although inventories came down, we're expecting a fairly solid second quarter as well. So I think we saw some improvements in efficiency gains that really helped. Mike, I can't think of anything else but….

Those are the two big things..

Okay. Great.

When you look in your Access & Aggregation business, do you have a rough idea? Can you give us a rough idea of where things stand between fiber and copper today in a percentage wise?.

Actually I don't have that number in front of me. That does vary a lot. I will tell you that in Q1, I would say, we had a strong -- we shipped quite a bit of vectoring in Q1. So my guess would be that it was material. Although, we had a very good PON quarter as well, and I talked about the growth in our PON shipments.

Though those PON shipments are not only PONs to our traditional carrier customer base, but are also PON shipments to MSO base. But I would think Q1 definitely just because of the materiality of the vectoring shipments that we have both in G.fast and in super-vectoring those were stronger..

But if we exclude that out beyond just a quarter and kind of looked on an annual basis.

So it doesn't sound like one is much bigger than the other, is it sort of 50-50?.

It's still project. It is still project oriented. So I would say, if you looked at over the year you're probably correct that you'll see more commonality or numbers that are closer to equality there. But on a -- so -- and the reason I'm saying that is if you think about the customer base.

So if you look at our biggest European customer, they're super-vectoring today. Then they’re moving to G.fast, then they're moving to fiber. And they have very well stated plans on that. So if we have a strong quarter there with that customer, you're going to see higher vectoring shipments.

Latin America does a little of both, without a doubt the biggest piece that they're doing with us today is in the vectoring front. So as that project happens that's going to drive for -- more for the copper piece. What's driving the PON piece today is predominantly the U.S. But I had previously talked about the XGS push. And that will happen.

That will be -- the counter to that is, we expect the MSO PON business to continue to grow. So it really just -- it really does depend on a kind of a project-by-project basis from where customers are in their network evolution..

Got it. Got it. That's helpful. Last question for me.

You previous -- I think you previously talked about cable MSO could be 20% of revenue this year? Is that a correct target? Has anything there changed?.

Nothing's changed in our cable forecast. And I don't recall the 20%, but nothing has changed in our outlook on cable..

Great. Thank you very much..

Okay..

And we'll move next to Rich Valera with Needham. Your line is open..

Thank you.

Tom, I'm not sure if you have given an update on your large historical European customer, but it sounds like they were strong this quarter, but can you give us a sense of how you see them for the balance of the year?.

Yes. Actually, it's going to be a little different this year. We're actually -- expecting more strength in the second half of the year than in the first half. First quarter was not a bad quarter. Second quarter we kind of see it to be kind of in line-ish with the first quarter and then we actually see a little pickup in the third.

Fourth is still kind of far out there, but I think I answered your question..

Yes. So just you've mentioned, I guess, at least a couple of customers that or engagements you expect to be up in the second half versus first. So I'm just wondering if you'd be willing to say anything about seasonality. Relative to the Q2 levels, it sounds like you're not expecting that traditional kind of fall-off in 3Q from your European customers.

So maybe would at least be looking at more like flattish sequentially from Q2?.

Yes. From the European customer, you're correct. We have -- at this point in time and then we typically don't give guidance that far out, but at this point in time, we're seeing probably an uptick in European our customer. We typically see in the U.S. an uptick as well, so those two will be the biggest drivers.

The two that we don't know yet about where the seasonal patterns would be, because they're under specific kind of project related build outs and it has to do with how fast they can install or Australia and Latin America. And I think that's just going to be related to how quickly they can get things in.

In both of those cases, there is a demand and there is -- and they have stated to us with different levels of specificity what they would like to do in the second half. And in the third quarter specifically, but whether or not they hit the third quarter or fourth quarter where that mix is at I don't know..

Got it. That's helpful.

And I was wondering if you were willing to say how much SmartRG contributed in the first quarter relative to your initial expectation? I think, which were $7 million to $8 million, I believe?.

Yes. There were in the 6-ish. So -- and that's -- we have a specific rationale or specific reasons for that. Some of that had to do with just the integration of us getting things bolted together. So, they were in the $6 million-ish, but we expect them to return back this quarter..

Got it. And then with respect to the OpEx. I think -- I don't know the exact wording, but it sounds like you expect that to be up some sequentially. And I was just trying to get any sense of magnitude there.

Are we talking sort of a couple million dollars $1 million or $2 million or for any granularity you'd be willing to give on the OpEx quarter-over-quarter would be helpful..

Yes, the language is -- was kind of meant to say $1 million or $2-ish million..

Got it, that's helpful.

And then the tax rate that kind of high-20% to 30% tax rate is that -- do we think that's the right tax rate for the balance of the year or is that going to bounce around do we think?.

That'll bounce around. It'll probably -- hopefully go down. I mean there are some things in that tax rate that hurt us. And I don't know if we stated explicitly, but we did in Q1 incurred some restructuring charges in our European operation.

We closed down one of the locations in Europe it -- of course, because it's Europe, it takes a long time for that to happen. So, that's been an ongoing process and we will see some of those restructuring charges in the second quarter as well.

And in fact it will actually pick up in the second quarter little on a GAAP basis which negatively hurts our non-GAAP. But those will be predominantly done through the -- second quarter should be the biggest -- we expect them to basically immaterial going forward, so hopefully, you will see that actually go down..

Got it. Okay. Thank you gentlemen. Appreciate it..

We'll move now to George Notter with Jefferies. Your line is open..

Hi guys. Thanks very much. I guess I wanted to get a sense for what the organic revenue growth rate would like right now. I heard what you said certainly about SmartRG in the quarter. But the Sumitomo PON deal that you did in the year-ago quarter I think also is an impact here.

But can you give us a sense for what the organic growth rate might look like ex those acquisitions right now?.

Honestly I don't -- the -- our SRG is an easy one. I think on a percentage basis I don't think you're going to see a big change specifically because of Sumitomo. But I really just don't have that number. I don't have the ex-Sumitomo number in front of me.

I can -- and I'm looking at Mike and I don't think there is a big impact in the organic growth rate because of that, but we'll follow-up -- yes, we can follow-up. I just don't have that broken out front of me George..

Okay. No worries. And then obviously news over this past quarter around wind stream with the bankruptcy filing it was interesting in that those guys I think were kind of gearing up to deploy more infrastructure on the broadband side.

But can you talk about how you saw that business changing with the filing and then what to expect going forward? That's it. Thanks..

That's okay. Interesting is one word for it, nerve-racking would be another word for it. So, -- but we feel we're in a good position. We've reached agreement with them. Any kind of offset to revenue that we would've had because of that agreement no actually occurred in Q1, so we don't expect any change going forward.

There is still a strong desire, at least, from our perspective and our conversations with them for them to roll out broadband. They can see the true impact of what it's doing to their subscriber net adds and what it's doing to attrition of their customer base or lowering the attrition of their customer base. So, -- but that is so fluid right now.

We're not making a lot into that in our going-forward forecast. We're hopeful that that it comes through fruition. But I think it's still kind of -- it's still a little cloudy.

The one thing I'm sure of is there is a desire, right? So, it's just the matter of how their capital structure works out and what they're able to put towards actually moving the network forward and so just stabilizing their operations..

Got it. That's helpful. Thank you..

Okay..

And we'll take our next question from Bill Dezellem with Tieton Capital. Your line is open..

Thank you. I have a couple of different questions. First one is that the last quarter you referenced a large number of RFPs that were out there or anticipated to be released.

Would you update on that process in any of those that you have any further clarity on? And then secondarily, how many customers this year are you expecting where you will see a $20 million revenue increase or more?.

About the second question that's a tough question because it's -- first of all, I would be giving -- that's forecasting pretty far out there. Needless to say there are customers that are driving the revenue to that level. But I would also say that in general the core business has obviously seen some growth and we expect that to happen.

So, I don't think the number is -- it's probably a handful-ish or maybe a little less. What's happening -- and some of that has to with timing. So, when we talks about the European opportunity, all of those are -- all of the ones that I talked about are actually still in play.

All of them had moved forward to one degree or another we have received RFPs from two or three of the set that I had talked about and are in different level of response. You even talked about one that we actually did a showcase with them of course. And we're moving to field trial with one in my notes.

So, -- and all of those are very large opportunities. They would be in the $20 million incremental bucket. But when you're talking about this year versus next year, I think it's tougher to actually quantify..

Great. Thank you..

Okay. All right. With that I think we're at the end of our question. So, I appreciate everybody joining us for the call and we look forward to having a good call with you in the next quarter..

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